Unit 8 Q Bank
A broker-dealer designated as a clearing firm would be expected to do all of the following except A) take custody of customer funds and securities. B) clear transactions for customer accounts. C) perform back-office functions such as sending trade confirmations to customers. D) maintain a lower net capital than noncarrying broker-dealers.
D) maintain a lower net capital than noncarrying broker-dealers. A firm carrying customer funds and securities assumes certain risks, and is therefore required to maintain levels of net capital higher than that of firms who do not accept custody of funds or securities (noncarrying firms).
Which of the following statements would describe the Fourth Market? A) A market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers B) The after-hours market C) These transactions take place through electronic communications networks (ECNs) which are open during normal trading hours and act solely as principals D) These transactions take place through electronic communications networks (ECNs). ECNs are open 24 hours a day and act solely as principals
A) A market for institutional investors in which large blocks of stock, both listed and unlisted, trade in transactions unassisted by broker-dealers
A firm designated as self-clearing can act in a back-office capacity for an introducing firm. not act in a back-office capacity for an introducing firm. clear and settle transactions executed by other firms. only clear transactions it executed. A) I and III B) I and IV C) II and III D) II and IV
A) I and III Self-clearing firms not only clear and settle their own executions (transactions) but can clear the executions of other firms that would be considered introducing or fully disclosed firms. In this light, fully disclosed firms are those that introduce their business to clearing firms. Clearing and settling transactions includes providing any back-office functions needed.
An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another who has been legally appointed to provide these services is best described as A) a trustee. B) a prime broker. C) an investment advisor. D) a market maker.
A) a trustee.
A fully disclosed broker-dealer A) is one that introduces its business to a carrying firm to clear transactions. B) clears all of its retail customer transactions and those of other broker-dealers. C) is also known as a full-service clearing agent able to process and clear transactions. D) is like a clearing agent in that it can take custody of funds and securities.
A) is one that introduces its business to a carrying firm to clear transactions.
For margin transactions taking place through introducing broker-dealers, those who do not clear their own transactions, extension requests are A) made by the clearing firm. B) made by the customer. C) made by the introducing broker-dealer. D) never permitted.
A) made by the clearing firm. Broker-dealers who are self-clearing will make their own extension requests. For those that are not self-clearing, known as introducing broker-dealers, the extension request must be made by the clearing firm.
A corporation enlists the services of a transfer agent, who would be expected to handle all of the following functions except A) registering the corporation's securities with the state. B) maintaining records of shareholder ownership. C) canceling old certificates and issuing new ones. D) replacing lost or destroyed stock certificates.
A) registering the corporation's securities with the state.
Carrying firms, those that carry customer accounts, must A) segregate customer funds and securities from the firms' funds and securities. B) maintain levels of net capital equal to or lower than noncarrying firms. C) not disclose its net capital if it is higher than noncarrying firms. D) commingle customer funds and securities with the firms' funds and securities.
A) segregate customer funds and securities from the firms' funds and securities.
A broker-dealer that accepts funds and securities from customers and its correspondent member firms would most likely be which of the following? A) A depository trust B) A carrying firm C) A fully disclosed introducing firm D) An investment company
B) A carrying firm
Correspondent firms would be likely to have relationships with which of the following types of broker-dealers? A) Fully disclosed B) Self-clearing C) Introducing D) Market maker
B) Self-clearing
A stock's market value is directly determined by which of the following? A) Board of directors B) Supply and demand C) Vote of the stockholders D) Company's financial condition
B) Supply and demand
A firm that functions for the purpose of receiving and delivering payments and securities on behalf of both buyer and seller in a securities transaction is A) a broker-dealer. B) a clearing agent. C) a transfer agent. D) a depository.
B) a clearing agent. A clearing agent is an intermediary between the buy and sell sides of a transaction that receives and delivers payments and securities on behalf of both parties. While some broker-dealers are self clearing (act as their own clearing agent), simply being a broker-dealer doesn't always include being able to provide the services of a clearing agent.
When a firm engages in proprietary trading, buying into and selling out of its own inventory for profit, it is acting as A) an underwriter. B) a market maker. C) an agent. D) an investment banker.
B) a market maker. When a broker-dealer buys and sells securities into and out of its own account as for the purpose of making a profit it is engaged in proprietary trading and is acting as a market maker (making markets in those securities). Investment banking and underwriting both primarily involve assisting issuers with bringing new securities issues to public investors. Agents act on behalf of others in the marketplace, such as a broker-dealer buying or selling for one of its customers.
An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another who has been legally appointed to provide these services is best described as A) a prime broker. B) a trustee. C) an investment advisor. D) a market maker.
B) a trustee.
The transfer agent for a corporation is responsible for each of the following except A) ensuring that its securities are issued in the correct owner's name. B) acting as an intermediary between the buy and sell sides of a transaction. C) maintaining records of ownership. D) canceling old and issuing new certificates.
B) acting as an intermediary between the buy and sell sides of a transaction.
Anyone who, as part of their business, gives investment advice for compensation must register as A) an agent for the issuer. B) an investment adviser under the Investment Advisers Act of 1940. C) an underwriter. D) a stock broker.
B) an investment adviser under the Investment Advisers Act of 1940.
All of the following are associated with being a carrying firm except A) being able to clear customer transactions. B) being a fully disclosed firm. C) accepting customer securities. D) accepting customer funds.
B) being a fully disclosed firm.
All of the following are acceptable choices to function as a depository and intermediary for transactions between buyers and sellers of securities except A) the National Securities Clearing Corporation (NSCC). B) credit unions. C) carrying firms. D) the Depository Trust Company (DTC).
B) credit unions.
It is expected that financial markets A) be nonregulated to allow for free trade. B) have transparent pricing for assets. C) have securities prices determined by a board of directors. D) be limited to stocks and bonds and not include derivatives like options.
B) have transparent pricing for assets.
It is expected that financial markets A) have securities prices determined by a board of directors. B) have transparent pricing for assets. C) be limited to stocks and bonds and not include derivatives like options. D) be nonregulated to allow for free trade.
B) have transparent pricing for assets.
When shares are held in street name, this refers to the shares being A) held at the transfer agent for the beneficial owner. B) held in the name of the broker-dealer for the beneficial owner. C) restricted, and thus, nontransferable. D) allowed to be sold only on the exchange where they were initially purchased.
B) held in the name of the broker-dealer for the beneficial owner.
In a prime brokerage account, the prime broker A) provides execution services only, while another broker clears transactions and provides any other account services required. B) provides custody and clearing services, as well as margin loans. C) subcontracts out all services to other brokers. D) provides custody and clearing, but no margin financing.
B) provides custody and clearing services, as well as margin loans. In a prime brokerage account, the prime broker provides custody and clearing services (including margin loans). The prime broker may provide some execution services and contract with other brokers to provide additional execution services.
All of the following are benefits of using a prime broker except A) multiple executing brokers. B) research. C) consolidation of records. D) cost savings.
B) research. An institutional investor may select one firm (the prime broker) to provide custody and financing of securities while other firms, called executing brokers, handle all trades placed by the customer. It is not unusual for large companies to use dozens of executing broker-dealers. Trade confirmations from the many executing broker-dealers are consolidated and are provided along with account statements by the prime broker. Prime brokerage is efficient and saves the customer time and money. Research is not associated with prime brokerage accounts.
Anyone who, as part of their business, gives investment advice for compensation must register as A) an agent for the issuer. B) an underwriter. C) an investment adviser under the Investment Advisers Act of 1940. D) a stock broker.
C) an investment adviser under the Investment Advisers Act of 1940.
All of the following are acceptable choices to function as a depository and intermediary for transactions between buyers and sellers of securities except A) the Depository Trust Company (DTC). B) carrying firms. C) credit unions. D) the National Securities Clearing Corporation (NSCC).
C) credit unions.
A broker-dealer designated as a carrying firm would be expected to do all of the following except A) clear transactions for customer accounts. B) take custody of customer funds and securities. C) maintain a lower net capital than noncarrying broker-dealers. D) perform back-office functions, such as sending trade confirmations to customers.
C) maintain a lower net capital than noncarrying broker-dealers.
Which of the following is true regarding a member firm operating under Financial Industry Regulatory Authority (FINRA) membership or the membership of another self-regulatory organization (SRO)? A) Member firms are required to be full-service broker-dealers. B) Member firms must always accommodate dealing with retail investors and not limit business to that done with other industry professionals. C) Member firms may never incorporate proprietary trading into their business model. D) Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, options, and others or limit the products they offer to only a few.
D) Member firms can offer all types of investment products, such as stocks, bonds, mutual funds, options, and others or limit the products they offer to only a few. Member firms can offer all types of investment products such as stocks, bonds, mutual funds, and derivatives like options and others (be full service) or limit the products they offer to only a few. They need not adopt proprietary trading into their business model but can if they wish to. Likewise, they need not accommodate doing business with retail customers if they wish to deal only with other industry professionals, such as institutional investors.
A broker-dealer that accepts the risk of holding a particular security in its account to facilitate trading and provide liquidity in that security is best described as A) a clearing corporation. B) a holding company. C) a direct participation program. D) a market maker.
D) a market maker.
All of the following are associated with being a carrying firm except A) accepting customer funds. B) being able to clear customer transactions. C) accepting customer securities. D) being a fully disclosed firm.
D) being a fully disclosed firm.
A corporation enlists the services of a transfer agent, who would be expected to handle all of the following functions except A) maintaining records of shareholder ownership. B) replacing lost or destroyed stock certificates. C) canceling old certificates and issuing new ones. D) filing an S-1 registration statement.
D) filing an S-1 registration statement.
For margin transactions taking place through introducing broker-dealers, those who do not clear their own transactions, extension requests are A) made by the customer. B) made by the introducing broker-dealer. C) never permitted. D) made by the clearing firm.
D) made by the clearing firm.
A market in which exchange-listed securities are traded in the over-the-counter (OTC) market would best be described as A) the First Market. B) the Fourth Market. C) the Second Market. D) the Third Market.
D) the Third Market.
A market in which exchange-listed securities are traded in the over-the-counter (OTC) market would best be described as A) the First Market. B) the Second Market. C) the Fourth Market. D) the Third Market.
D) the Third Market.
An institution or a person responsible for making all investment, management, and distribution decisions in an account maintained in the best interests of another is known as A) a fully disclosed firm. B) a custodian. C) an investment company. D) a unit investment trust.
B) a custodian.
A firm designated as self-clearing can act in a back-office capacity for an introducing firm. not act in a back-office capacity for an introducing firm. clear and settle transactions executed by other firms. only clear transactions it executed. A) II and IV B) I and IV C) I and III D) II and III
C) I and III
An institutional investor selects a single Financial Industry Regulatory Authority (FINRA)/NYSE member firm to provide for financing and custody of securities while orders to buy or sell are placed with executing brokers. This is an example of A) a managed account. B) an omnibus clearing arrangement. C) a prime brokerage account. D) an investment advisory account.
C) a prime brokerage account.
A stock's market value is directly determined by which of the following? A) Supply and demand B) Company's financial condition C) Vote of the stockholders D) Board of directors
A) Supply and demand
Your broker-dealer executes trades for other broker-dealers and after execution settles those transactions for them. Your firm would be classified as which of the following? A) Limited broker-dealer B) Fully disclosed firm C) Carrying firm D) Introducing firm
C) Carrying firm
A corporation enlists the services of a transfer agent, who would be expected to handle all of the following functions except A) replacing lost or destroyed stock certificates. B) canceling old certificates and issuing new ones. C) registering the corporation's securities with the state. D) maintaining records of shareholder ownership.
C) registering the corporation's securities with the state.
A market maker A) trades in a customer's account standing ready to buy or sell at their own discretion. B) acts as an agent to buy and sell for public customers who will hold their own securities. C) trades in a proprietary account to facilitate trading of a security and provide liquidity. D) can only be an institution doing proprietary trading.
C) trades in a proprietary account to facilitate trading of a security and provide liquidity.
